Reference
Premium and Discount (Equilibrium)
Premium and discount are the two halves of a defined price range, split by its 50% midpoint — the equilibrium. Price trading above equilibrium is at a premium and is considered expensive relative to that range; price below it is at a discount and is considered cheap. The convention is to look for sells in premium and buys in discount.
Last updated 2026-08-02
Key facts
- Equilibrium is the 50% level of a chosen range — the exact midpoint between its high and its low.
- Premium and discount are relative, not absolute: the same price can be premium in one range and discount in a larger one.
- The range they are measured on is called the dealing range, and choosing it is the entire difficulty of the concept.
- Premium and discount describe pricing, not direction — they tell you where you would rather transact, not which way price is going.
- For a bullish idea the discount half is where entries are sought; for a bearish idea, the premium half.
- The OTE zone (62–79% retracement) always sits inside the discount half of a bullish leg and the premium half of a bearish one, which is why the two concepts agree.
- In Candle Range Theory the equilibrium of a single candle's range performs the same job as the equilibrium of a larger dealing range.
How to draw premium and discount
Take a range you can point at — a clear swing low and the swing high that followed it, or vice versa — and mark the midpoint between the two. That midpoint is equilibrium. Everything above it is premium, everything below it is discount. There is no indicator involved; it is one line at 50%.
The range you measure is called the dealing range, and this is where the concept lives or dies. A dealing range should be bounded by two points that clearly mattered — a high that was rejected, a low that was defended, a level that produced a reaction other traders can see. Anchoring to an arbitrary swing produces an arbitrary midpoint, and everything downstream of it inherits that arbitrariness.
A useful discipline is to draw the range before you have an opinion about direction. A midpoint chosen after you already want to buy has a way of landing exactly where it justifies buying.
Why the midpoint is the level that matters
The reasoning is straightforward: within any range, the further price sits from the side you intend to trade toward, the better the price you are getting and the shorter the distance to your invalidation. Buying at a discount means buying nearer the low of the range, so the stop beneath that low is closer and the target at the top of the range is further away. The entire benefit is reward-to-risk, and it is arithmetic rather than prediction.
This is also what makes the concept a filter rather than a signal. It cannot tell you that price will rise. It can tell you that buying in the top quarter of a range is paying a poor price for whatever thesis you hold, and that if you are right about direction you will usually get a better fill by waiting.
The cost is symmetrical and worth stating plainly: waiting for discount means missing the moves that never retrace. That is a real cost, not a rounding error, and it is the reason the filter suits some markets and timeframes better than others.
Premium and discount versus OTE
These two are constantly confused because both involve retracement. The difference is what they are measured on. Premium and discount split a dealing range — a high and a low that bound an area price is working within. OTE is measured on an impulse leg — a single directional move — and picks a narrow band inside its retracement.
They nest rather than compete. The 62–79% retracement of a bullish impulse leg necessarily sits below that leg's own 50% level, which means an OTE entry is always a discount entry relative to the leg. Premium and discount is the coarse filter; OTE is the fine one inside it.
In practice the sequence runs: establish direction, identify the dealing range, confirm price is in the favourable half, then refine the entry with OTE or an unmitigated level. Skipping straight to OTE without the range check is how traders end up taking a technically correct retracement entry in the wrong half of a much larger range.
Where traders get it wrong
Treating it as a signal. Price being in discount is not a reason to buy. It is a reason that buying, if you were going to, is better done here than thirty points higher. Direction has to come from somewhere else — structure, a liquidity event, displacement.
Re-drawing the range until it agrees. If the midpoint moves every time price does, it is not doing any work. Fix the dealing range to levels that clearly mattered and leave it alone until price breaks out of it.
Ignoring the higher timeframe range. A price sitting in discount on a one-hour range can be sitting in deep premium on the daily. When the two disagree, the larger range is the one setting the terms — the smaller one is a detail inside it.
Forgetting that a broken range is a dead range. Once price trades decisively outside the high or low, the range that produced your equilibrium no longer bounds anything, and a new dealing range has to be drawn.
Premium, discount and Candle Range Theory
Candle Range Theory uses the same geometry at a smaller scale. A single higher-timeframe candle's high and low form the range, and its 50% midpoint is the equilibrium — so the premium and discount halves exist inside one candle exactly as they do inside a multi-week dealing range. That is why the CRT playbook says to look for sells after a sweep of the high while price is in premium, and buys after a sweep of the low while in discount.
The combination is what makes the filter actionable rather than abstract: the sweep supplies the liquidity event and the timing, equilibrium supplies the pricing. Both worked examples in the CRT trading strategy explained turn on that agreement between the swept edge and the half of the range price was sitting in.
CRTLAB teaches equilibrium as part of the CRT × Mitigation method rather than as a standalone idea — the range gives the levels, mitigation gives the reason price returns, and premium and discount decide whether the entry is worth taking at the price on offer.
Questions
What do premium and discount mean in trading?
They are the two halves of a defined price range, split at its 50% midpoint or equilibrium. Above the midpoint is premium — expensive relative to that range. Below it is discount — cheap relative to that range. Traders look to sell in premium and buy in discount.
What is equilibrium in ICT trading?
Equilibrium is the 50% level of a dealing range, the exact midpoint between its high and low. It is the line that separates the premium half from the discount half, and it is drawn manually rather than produced by an indicator.
How do I know which range to measure premium and discount on?
Use a dealing range bounded by two points that clearly mattered — a high that was rejected or a low that was defended, levels other traders can also see. Draw it before forming a directional opinion, and redraw only when price trades decisively outside it.
Is premium and discount the same as OTE?
No. Premium and discount split a whole dealing range at 50%. OTE is the 62–79% retracement band of a single impulse leg. They nest — an OTE entry always falls in the favourable half of its own leg — so premium and discount is the coarse filter and OTE the refinement inside it.
Should I only buy in discount?
It is a filter, not a rule that guarantees anything. Buying in discount improves your reward-to-risk because the stop is nearer and the target further, but it also means skipping moves that never retrace far enough. Whether that trade-off pays depends on how often your market actually retraces, which is measurable.
Can price be in premium and discount at the same time?
Yes, on different ranges — price can sit in discount on a one-hour range while sitting in premium on the daily. That is not a contradiction, it is a difference of scale. When the two disagree, the higher-timeframe range is the one setting the terms.
How does premium and discount apply to CRT?
A single candle's range has an equilibrium just as a large dealing range does. CRT uses it directly: a sweep of the range high is of interest while price is in premium, and a sweep of the low while price is in discount. The sweep supplies the timing and equilibrium supplies the pricing.